Market Overview

Wiley Reports Second Quarter Fiscal 2019 Results

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John Wiley & Sons, Inc. (NYSE:JW), a global leader in
research and education, today announced results for the second quarter
ended October 31, 2018.

SECOND QUARTER 2019 HIGHLIGHTS

  • Reported results (GAAP): Revenue of $449 million (-1% vs. prior year),
    Operating Income of $57 million (-29%), and EPS of $0.76 (-27%), with
    earnings performance impacted by $10 million in restructuring charges
    in the current quarter
  • Non-GAAP results (constant currency): Revenue +1%, Adjusted Operating
    Income -10%, and Adjusted EPS -9%, with lower adjusted earnings
    performance primarily due to investments in growth initiatives,
    including publishing more in Research and driving enrollment growth in
    Education Services
  • Acquisition of The Learning House (completed on November 1)
    strengthens Wiley's leadership in the rapidly-growing $10 billion
    education services market for universities and corporations
  • Full-year guidance reaffirmed (excluding Learning House acquisition)

FIRST HALF 2019 HIGHLIGHTS

  • Reported results (GAAP): Revenue of $860 million (flat with prior
    year), Operating Income of $94 million (flat), and EPS of $1.21 (+1%),
    with earnings performance impacted by higher restructuring charges in
    prior year
  • Non-GAAP results (constant currency): Revenue flat, Adjusted Operating
    Income -16%, and Adjusted EPS -17%, with lower adjusted earnings
    performance primarily due to investments in growth initiatives,
    including publishing more in Research and driving enrollment growth in
    Education Services
  • Calendar Year 2019 society journal publishing net wins +$3 million;
    Open Access growth +36%
  • New Education Services partnership agreements signed with Michigan
    State University, University of Glasgow, and University of Bath;
    long-term partnership extensions signed with Our Lady of the Lake
    University (TX) and Saint Mary's University (MN)

MANAGEMENT COMMENTARY

"We continued to make good progress in the second quarter, with 3%
constant currency growth in Research, fueled by double-digit growth in
Open Access and Atypon, and 9% constant currency growth in our Solutions
segment," said Brian Napack, Wiley's President and CEO. "We are
successfully signing high-profile university partners, winning new
research publishing business and growing in important areas such as Open
Access publishing, Corporate Learning, WileyPLUS, Test Prep, and
Professional Assessment. We are also making important progress on our
operational effectiveness and cost reduction initiatives. We are
particularly excited about our acquisition of The Learning House, which
strengthens our leadership position in a rapidly-growing $10 billion
market for tech-enabled services that help universities and corporations
deliver powerful, career-enhancing learning, and expands our education
delivery offerings to include career-enhancing short courses,
certification programs, and continuing education programs."

FINANCIAL SUMMARY

Wiley provides non-GAAP financial measures and performance results such
as "Adjusted EPS," "Adjusted Operating Income," "Adjusted CTP," "Free
Cash Flow less Product Development Spending," and results on a Constant
Currency (or "CC") basis to assess underlying business performance and
trends. Management believes non-GAAP financial measures, which exclude
the impact of restructuring charges and credits and certain other items,
provide for a more comparable basis to analyze operating results and
earnings. See the reconciliations of non-GAAP financial measures and
explanations of the uses of non-GAAP measures in the supplementary
information accompanying this press release.

Second Quarter Results

GAAP Measures

Unaudited ($millions except for EPS)

  Q2 2019   Q2 2018   Change  

Change

Constant Currency

Revenue   $448.6   $451.7   (-1%)   1%
Operating Income $57.5 $80.8 (-29%)
Diluted EPS   $0.76   $1.04   (-27%)    
Non-GAAP Measures   Q2 2019   Q2 2018      

Change

Constant Currency

Adjusted Operating Income $67.5 $79.4 (-10%)
Adjusted EPS   $0.89   $1.03       (-9%)

Wiley recorded foreign currency variances in the quarter of $8.7
million unfavorable in revenue, $3.9 million unfavorable in operating
income, and $0.05 unfavorable in EPS.

  • Revenue reflected steady momentum in Research (0% reported, +3%
    CC) and high single-digit growth in Solutions (+8%, +9% CC) offset by
    a decline in Publishing (-5%, -3% CC).
    • Research segment results were driven by
      double-digit growth in Open Access (+47%, 50% CC) and Atypon
      Publishing Technology Services (+17%). Journal Subscriptions were
      flat at constant currency.
    • Publishing segment results reflected declines in Education
      Publishing (-10%, -8% CC) and STM and Professional Publishing
      (-6%, -5% CC), which offset higher revenue in WileyPLUS (+13%,
      +14% CC, mostly due to prior-year revenue deferrals for courses
      extending across two semesters) and growth in Test Preparation
      (+6%, +7% CC).
    • Solutions segment growth was driven by Corporate Learning
      (+24%, +28% CC) and Professional Assessment (+9%). Education
      Services performance (0%, +1% CC) saw same-school growth (9%)
      offset by the termination of certain underperforming partnerships,
      as previously reported.
  • GAAP Operating Income decline reflected investment in growth
    initiatives and the timing of restructuring charges and credits ($10.0
    million charge this period and a $1.4 million credit in prior year),
    as well as unfavorable foreign exchange impacts. Adjusted Operating
    Income
    declined mainly due to investment in growth initiatives.
    • Research CTP declined 16% on a reported basis and 7% on an
      adjusted basis at constant currency, reflecting higher society
      publishing royalties and investments in editorial resources to
      support increased journal publishing, as well as investments in
      increased sales resources.
    • Publishing CTP declined 6% reported and 2% adjusted at
      constant currency due to lower revenue.
    • Solutions CTP declined 4% reported but rose 22% adjusted at
      constant currency due to revenue growth and efficiency gains,
      offsetting higher investment in Education Services to drive
      enrollment growth.
    • Corporate Expenses rose 24% on a reported basis due to
      restructuring charges, or 10% on an adjusted basis at constant
      currency, primarily due to costs associated with strategic
      planning.
  • GAAP EPS performance mainly reflected lower operating income. Adjusted
    EPS
    declined primarily due to investments in growth initiatives.
  • Restructuring Charges: Wiley recorded $10 million of
    restructuring charges in the quarter reflecting continued cost
    reduction actions across the business. These actions will yield
    approximately $15 million in run rate savings commencing in the second
    half of fiscal 2020. The charges are primarily related to severance
    costs.

First Half Results

GAAP Measures

Unaudited ($millions except for EPS)

 

1H 2019

 

1H 2018

 

Change

 

Change

"CC"

Revenue   $859.5   $863.2   0%   0%
Operating Income $93.6 $93.4 0%
Diluted EPS $1.21 $1.20 1%
Cash Used by Operating Activities   ($121.1)   ($45.8)        

Non-GAAP Measures

  1H 2019   1H 2018   Change  

Change

"CC"

Adjusted Operating Income $97.5 $121.3 (-16%)
Adjusted EPS $1.31 $1.62 (-17%)

Free Cash Flow less Product
Development Spending

  ($163.5)   ($117.2)   (-40%)    

Wiley recorded foreign currency variances in the first six months of
$6.3 million unfavorable in revenue, $4.4 million unfavorable in
operating income, and $0.04 unfavorable in EPS

  • Revenue reflected steady performance in Research (0% reported,
    +1% CC) and growth in Solutions (+8%) offset by a decline in
    Publishing (-5%, -4% CC).
    • Research segment results were driven by
      double-digit growth in Open Access (+36%) and Atypon Publishing
      Technology Services (+10%), offsetting a decline in Journal
      Subscriptions, primarily related to timing of publications.
    • Publishing segment performance primarily reflected a
      decline in Education Publishing (-13% reported, -12% CC).
      Education Publishing represents approximately 10% of total Wiley
      revenue. Modest declines in STM and Professional Publishing (-2%,
      -1% CC) offset higher revenue in WileyPLUS (+10%, +11% CC), due in
      large part to revenue recognition timing, and growth in Test
      Preparation (+2% reported, +3% CC).
    • Solutions segment growth included higher revenue in all
      three businesses: Education Services (+5%), Corporate Learning
      (+13%), and Professional Assessment (+8%).
  • GAAP Operating Income largely reflected higher restructuring
    charges in prior year. Adjusted Operating Income declined
    mainly due to investment in growth initiatives.
    • Research CTP declined 11% on a reported basis and 10% on an
      adjusted basis at constant currency. Performance reflected higher
      society publishing royalties and investments in editorial
      resources to support increased journal publishing, as well as
      investments in increased sales resources.
    • Publishing CTP rose 15% on a reported basis due to higher
      restructuring and impairment charges in the prior year period but
      declined 6% on an adjusted basis at constant currency due to lower
      revenue.
    • Solutions CTP grew 92% on a reported basis or 47% adjusted
      a constant currency due to higher revenue and efficiency gains,
      offsetting higher investment in Education Services to drive
      enrollment growth.
    • Corporate Expenses decreased 3% on a reported basis due to
      higher restructuring charges in the prior year period but
      increased 8% on an adjusted basis at constant currency primarily
      due to costs associated with strategic planning.
  • GAAP EPS largely reflected higher reported operating income and
    lower foreign exchange losses. Adjusted EPS decline was
    primarily due to lower adjusted operating income.
  • Net Cash Used in Operating Activities was primarily due to
    timing swings in working capital including a delay in billings and
    subsequent collections for calendar year 2019 subscriptions and, to a
    lesser extent, higher payments for expenses. Free Cash Flow less
    Product Development Spending
    performance was due to higher cash
    used in operating activities. Cash flow from operations is a use of
    cash in the first half of Wiley's fiscal year principally due to the
    timing of collections for annual journal subscriptions. Capital
    expenditures, including Technology, Property, and Equipment and
    Product Development Spending, declined $29 million to $42 million due
    to the completion of Wiley's headquarters transformation, the May 2018
    implementation of our ERP order-to-cash release for journal
    subscriptions, and reporting changes from the adoption of ASC 606.
  • Shareholder Return: In June, Wiley raised its annual dividend
    for the 25th consecutive year to $0.33 per quarter (+3%).
    In the half, the Company utilized $38 million of cash for dividends
    and approximately $25 million for share repurchases with an average
    per share cost of $58.79.

FISCAL YEAR 2019 OUTLOOK

The Company reaffirms its fiscal 2019 guidance.

Metric ($M, except EPS)   FY18 Actual  

FY19 Expectation

Constant Currency

  Status
Revenue   $1,796.1   Even with prior year   Reaffirmed
Adjusted EPS $3.43 Mid-single digit decline Reaffirmed
Cash Provided by Operating Activities $381.8 High-single digit decline Reaffirmed
Capital Expenditures   $150.7   Lower   Reaffirmed

*Outlook excludes contributions from The Learning House acquisition
(closed on November 1).
For fiscal 2019, we anticipate The
Learning House to contribute approximately $30 million in Revenue and be
dilutive to EPS by approximately $0.10.

  • Wiley anticipates low-single digit Revenue growth in Research and
    Solutions offset by a low-single digit Revenue decline in Publishing.
  • Adjusted EPS is expected to decline primarily due to increased
    investment in growth initiatives, including publishing more in
    Research and driving enrollment growth in Education Services
  • Cash Provided by Operating Activities reflects the impact of growth
    investments and substantially lower gains in working capital. In
    addition, implementation of ASC 606 will move approximately $10
    million of spending from Capital Expenditures to Cash from Operating
    Activities.
  • Capital Expenditures are expected to be lower by $30 million primarily
    due to the completion of the Company's headquarters transformation. In
    addition, implementation of ASC 606 will move approximately $10
    million of spending from Capital Expenditures to Cash from Operating
    Activities.
  • Non-GAAP effective tax rate for the year is expected to be
    approximately 23-24%.

EARNINGS CONFERENCE CALL

Scheduled for today, December 5 at 10:00 a.m. (ET). Access the webcast
at https://edge.media-server.com/m6/p/mm9am8gc,
or on Wiley.com at https://www.wiley.com/en-us/investors.
U.S. callers, please dial 866-548-4713 and enter the participant code
3834926#. International callers, please dial 866-548-4713 and enter the
participant code 3834926#.

ABOUT WILEY

Wiley, a global research and education company, helps people and
organizations develop the skills and knowledge they need to succeed. Our
online scientific, technical, medical, and scholarly journals, combined
with our digital learning, assessment and certification solutions help
universities, academic societies, businesses, governments and
individuals increase the academic and professional impact of their work.
For more than 200 years, we have delivered consistent performance to our
stakeholders. The Company's website can be accessed at www.wiley.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements concerning the
Company's Fiscal Year 2019 Outlook, operations, performance, and
financial condition. Reliance should not be placed on forward-looking
statements, as actual results may differ materially from those in any
forward-looking statements. Any such forward-looking statements are
based upon a number of assumptions and estimates that are inherently
subject to uncertainties and contingencies, many of which are beyond the
control of the Company and are subject to change based on many important
factors. Such factors include, but are not limited to (i) the level of
investment in new technologies and products; (ii) subscriber renewal
rates for the Company's journals; (iii) the financial stability and
liquidity of journal subscription agents; (iv) the consolidation of book
wholesalers and retail accounts; (v) the market position and financial
stability of key online retailers; (vi) the seasonal nature of the
Company's educational business and the impact of the used book market;
(vii) worldwide economic and political conditions; (viii) the Company's
ability to protect its copyrights and other intellectual property
worldwide (ix) the ability of the Company to successfully integrate
acquired operations and realize expected opportunities; (x) achievement
of targeted run rate savings through restructuring actions; and (xi)
other factors detailed from time to time in the Company's filings with
the Securities and Exchange Commission. The Company undertakes no
obligation to update or revise any such forward-looking statements to
reflect subsequent events or circumstances.

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